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Section 45L, the new energy efficient home credit, is a valuable tax incentive available to eligible contractors who construct energy efficient homes. 45L was originally enacted in the Energy Policy Act of 2005 but expired at the end of 2021. Thankfully the Inflation Reduction Act recently extended and enhanced the expired 45L credit, allowing taxpayers to claim up to $5,000 per dwelling unit through the end of 2032.

Who Qualifies for the 45L Tax Credit?

The 45L tax credit can be claimed by any eligible contractor who is constructing energy efficient single or multi-family homes that are sold or leased. Eligible contractors can include homebuilders, developers, and producers of manufactured homes. The eligible contractor must have basis in the home during construction to be able to claim the credit.

What Projects are Eligible for the 45L Tax Credit?

New construction, significant reconstruction, and rehabilitation of residential (single-family and multi-family) properties are eligible for 45L. Originally only properties that are 3 stories or less were included in this incentive. The Inflation Reduction Act removed this requirement, making high-rise residential projects eligible as well.

Eligible residential buildings can include:

  • Single-family homes (custom & manufactured)
  • Townhouses
  • Apartments
  • Condominiums
  • Assisted living facilities
  • Student housing

How Much Can I Claim for the 45L Tax Credit?

Beginning in 2023, the Inflation Reduction Act updated the qualification requirements and potential 45L credit. In addition, a significantly larger credit can be claimed if prevailing wage & apprenticeship requirements are met on multi-family projects.

2022 and Prior:

2023 and future:

What is Required to Claim the 45L Tax Credit?

To claim the 45L tax credit, eligible contractors must complete and submit IRS Form 8908 – Energy Efficient Home Credit. In addition, a site visit and certification must be obtained from an eligible, third-party certifier. In 2022 and prior years, the certifier should be authorized by RESNET or an equivalent rating network. In 2023 and future years, an Energy Star or Zero Energy Ready certification must be obtained.

The 45L tax credit is a complex incentive but if done correctly, can provide a significant benefit to taxpayers who are constructing energy efficient properties benefiting homeowners and the community. It’s important to partner with a team with expertise in tax and construction to ensure a high-quality and complete 45L study.

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Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals across the country. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team stands ready to assist you.